Lawyer may represent subsidiary of corporation while simultaneously suing parent company if subsidiary and parent are separate corporate entities, confidential information will not be misused, and representation of subsidiary is not limited by the litigation involving the parent
"By this letter, our firm requests a written opinion from the Alabama State Bar through its general counsel concerning the following question of conflict of interest in the context of corporate representation under the following facts:
May a lawyer represent a wholly owned subsidiary of a publicly traded parent company and then institute separate litigation against the parent company? For purposes of this question, the parent company and the wholly owned subsidiary are separate corporate entities. Further, what other facts or circumstances, if found to exist, would create a conflict of interest assuming that the separate corporate identities of these two corporate entities would normally, in and of itself, eliminate a conflict of interest under the general rule provided in Rule 1.7 of the Alabama Rules of Professional Conduct?"
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You may represent a wholly owned subsidiary of a publicly traded corporation while, at the same time, instituting litigation against the parent company if the subsidiary and parent are separate corporate entities. You may represent both entities in unrelated litigation if both entities have separate corporate identities, there is no risk that confidential information will be misused, and your representation of the subsidiary is not limited by your litigation involving the parent.
Rule 1.13 of the Alabama Rules of Professional Conduct recognizes that an organizational client is a legal entity and thus, the entity is the client as opposed to its officers, directors, employees, shareholders, or other constituents. Consequently, the parent corporation, even when it owns 100% of the stock of the subsidiary, is still a shareholder and constituent of the subsidiary. See California State Bar Ethics Opinion 1989-113 (7/6/90).
The Disciplinary Commission of the Alabama State Bar reached a similar conclusion in RO-90-96 (incorporated and made a part of this opinion) when it held that a law firm may represent a plaintiff in a suit against an insurance comjpany that is a subsidiary of a large corporation, even though the firm represented other subsidiaries of the corporation in unrelated litigation, if each subsidiary has its own corporate identity and there is no risk that the firm will misuse confidential information.
From a practical standpoint, the entity theory has more validity when applied to large publicly held corporations. Professor Wolfram addressed this point in his hornbook on Modern Legal Ethics, as follows:
"The position of the Code and the Model Rules, that the lawyer represents only the corporate entity, makes sense primarily in the setting of large, publicly held corporations. As corporate stock ownership is concentrated in fewer and fewer hands, the distinction between corporate entity and shareholders begins to blur. In the case of a sole-owner corporation, they may merge. Often a lawyer for such a partnership corporation will provide personal legal services for corporate principals interchangeably with services to the corporate entity. In recognition of that common reality, one court has held that for conflict of interest purposes, a small and closely held corporation and its shareholders are to be treated as virtually identical and inseparable. Wolfram, Modern Legal Ethics, West Publishing (1986) p.422, citing In re Brownstein, 602 P.2d 655, 656-657 (1979).
Thus, a lawyer may represent a client in an action against a corporation that is a wholly owned subsidiary of an existing corporate client so long as the parent corporation is not the alter ego of the subsidiary. See also Maryland State Bar Ethics Opinion 87-19.